April 29 (Bloomberg) -- J.C. Penney Co.’s $254.5 million of
bonds containing a provision that may restrict the retailer’s
debt load surged after the company said proceeds of a new
secured loan may be used to amend or acquire the notes.

The company’s 7.125 percent securities due November 2023
jumped 32.5 cents on the dollar to a record 134.75 cents and
yielded 3.2 percent at 10:43 a.m. in New York, according to
Trace, the bond-price reporting system of the Financial Industry
Regulatory Authority. The debt traded as low as 83 cents in
January to yield 9.69 percent.

The retailer working to rebound from the lowest annual
sales in more than two decades received a $1.75 billion, five-year term loan commitment from Goldman Sachs Group Inc., Plano,
Texas-based J.C. Penney said today in a statement. Proceeds may
be used to fund working capital requirements and “to amend,
acquire or satisfy and discharge” the 7.125 percent notes, J.C.
Penney said.

The securities are J.C. Penney’s only bonds with a so-called incurrence covenant that can restrict future issuance if
the company’s ratio of net tangible assets to senior funded
indebtedness is below 200 percent. The ratio was 304 percent at
the end of last year, J.C. Penney said in a March 20 regulatory
filing.

“We thought it was a gamble to buy these bonds, but it
seems that this development puts those bondholders in a pretty
good negotiating position,” Carol Levenson, director of
research at Chicago-based Gimme Credit LLC, said today in a
report. “None of this would have been necessary if Penney had
not embarked upon its great visionary transformation.”